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In case of U.S. enforcement of a Swiss arbitral award, Second Circuit holds that it was proper for district court to issue an anti suit injunction that prevents litigation in Indonesia despite anti suit injunction issued by Indonesian court
In 1994, Karaha Bodas Company, LLC (KBC), a Cayman Islands company entered into a joint venture with Pertamina, an oil and gas company owned and controlled by the Republic of Indonesia, to explore and develop certain geothermal energy resources in Indonesia (the “Project”). The parties agreed to settle any disputes by binding arbitration in Geneva, Switzerland. In 1998, after the Indonesian government had suspended the Project, KBC initiated arbitration proceedings in Switzerland and was awarded over $261 million.
In 2001, at KBC’s request, the United States District Court for the Southern District of Texas confirmed the Award in the amount of $261 million plus interest. In March 2002, Pertamina filed an action in an Indonesian trial court, while the Texas District Court’s judgment was on appeal in the U.S. Court of Appeals for the Fifth Circuit.
KBC obtained a temporary restraining order from the Texas District Court prohibiting Pertamina from pursuing its case in Indonesia. Pertamina obtained an injunction from the Indonesian court prohibiting KBC from enforcing the Award and annulling the Award, despite the Texas District Court’s temporary restraining order. The Texas District Court issued a preliminary injunction prohibiting the enforcement of the Indonesian injunction.
The United States Court of Appeals for the Fifth Circuit vacated the preliminary anti suit injunction issued by the Texas District Court. In March 2004 the Indonesian Supreme Court vacated the Indonesian trial court’s injunction and order nullifying the award, ruling that only the Swiss court had power to annul the Award. The Fifth Circuit affirmed the confirmation of the Award.
KBC sought enforcement of the Texas District Court’s judgment in the Southern District of New York, where Pertamina maintained bank accounts that held hundreds of millions of dollars in assets. The parties engaged in litigation as to whether the money in the accounts belonged to Pertamina or the Indonesian government. The U.S. Court of Appeals for the Second Circuit determined that the money in the account was owned by both Pertamina and the Indonesian government. The District Court then ordered Pertamina to turn over the amount of the award from those funds that they owned.
Pertamina then filed an action in the Cayman Islands claiming fraud and seeking repayment of all funds received by KBC and seeking an injunction prohibiting KBC from disposing of any of the funds. KBC moved in the Southern District of New York for an injunction prohibiting Pertamina from maintaining the action or filing similar actions and allowing KBC to dispose of the funds. The District Court granted the anti suit injunction and declared the funds the property of KBC. This appeal ensued.
The U.S. Court of Appeals for the Second Circuit affirms the judgment with minor modifications.
“Under the China Trade test [China Trade & Development Corp. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir. 1987)], an anti suit injunction against foreign litigation may be imposed only if two threshold requirements are met: “(A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined.” [Cite]. If these two threshold requirements are satisfied, “courts are directed to consider a number of additional factors,” [Cite]. including whether the parallel litigation would: (1) frustrat[e] . . . a policy in the enjoining forum; (2) . . . be vexatious; (3) . . . threat[en] . . . the issuing court’s in rem or quasi in rem jurisdiction; (4) . . . prejudice other equitable considerations; or (5) . . . result in delay, inconvenience, expense, inconsistency, or a race to judgment.” [Slip op. 9]
Here, it is undisputed that the first threshold requirement of China Trade is satisfied. The parties are identical in both the proceedings before the District Court and in the Cayman Islands action. However, the second threshold requirement of China Trade, namely that resolution of the case before the enjoining court is dispositive of the action, requires further analysis.
“[T]he federal judgments satisfy the China Trade requirement because the Award, and the federal judgments confirming and enforcing it, actually decided the claims raised in the Cayman Islands action. We also conclude that the [Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention”)] permits the federal judgments to be treated as “dispositive” of the Cayman Islands action.” [Slip op. 12]
“[F]ederal courts should not attempt to protect a party seeking enforcement of an award under the New York Convention ‘from all the legal hardships’ associated with foreign litigation over the award[b]ut federal courts do have inherent power to protect their own judgments from being undermined or vitiated by vexatious litigation in other jurisdictions.” [Slip op. 13 14]
“Here, an injunction is necessary because the Cayman Islands action threatens to undermine the federal judgments confirming and enforcing the Award against Pertamina, and may also undermine federal jurisdiction to determine whether prior federal judgments should be invalidated on the basis of the fraud alleged by Pertamina. [Cite]. The injunction is also supported by strong public policy considerations. We have noted ‘the strong public policy in favor of international arbitration,’ and the need for proceedings under the New York Convention ‘to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.’ [Cite]. These important objectives would be undermined were we to permit Pertamina to proceed with protracted and expensive litigation that is intended to vitiate an international arbitral award that federal courts have confirmed and enforced.” [Slip op. 16]
The Court also finds that the foreign action would be vexatious. Pertamina failed to make a claim of fraud during the six years that litigation in the United States continued. Thus, the Cayman Islands suit was likely for the purpose frustrating the U.S. judgments and creating delay.
The Court thus affirms the district court with the exception of excluding Switzerland, the country with jurisdiction over the award, from the anti suit injunction.
Citation: Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, No. 07 0065 cv (2d Cir. September 7, 2007).
Filed in: 2007 International Law Update, Issue12
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Eleventh Circuit vacates anti suit injunction where Costa Rican and U.S. district court actions are pending involving the same agreement between the parties because the legal claims in both actions differ
In 1996, Canon Latin America, Inc. (“Canonlat”), a Florida corporation, agreed with Lantech (C.R.), S.A. (“Lantech”) of Costa Rica regarding the distribution of Canon products in Costa Rica. This agreement was superseded in 2003 by a distribution agreement (“Agreement”) that made Lantech the non exclusive distributor of Canon brand products in Costa Rica. The Agreement included a forum selection and a choice of law clause designating Florida.
In 2004, Lantech started falling behind on its payments to Canonlat, and Canonlat appointed Santa Barbara Technology, S.A. (“SB Technology”) as an additional distributor. Lantech, without a warning, then filed suit in Costa Rica against Canonlat and SB Technology for violations of Costa Rica Public Law 6209 (Representatives of Foreign Companies Act). A Costa Rican court demanded that Canonlat post a $1 million bond or discontinue selling goods in Costa Rica. Eventually, Canonlat posted the bond and sought to have the Costa Rican lawsuit dismissed for lack of jurisdiction. Canonlat also terminated the Agreement with Lantech for Lantech’s failure to pay for the Canon products.
In February 2005, Canonlat brought the present lawsuit against Lantech in the Southern District of Florida, seeking an injunction against Lantech’s Costa Rican lawsuit. The district court granted Canonlat a permanent injunction, barring Lantech from proceeding with its case in Costa Rica. Lantech appeals the district court’s order, claiming that the threshold requirements for an anti suit injunction are not met.
The U.S. Court of Appeals for the Eleventh Circuit, in a per curiam opinion, vacates the injunction and remands the case for dismissal of Canonlat’s outstanding claims.
Federal courts have some power to enjoin foreign lawsuits by persons subject to federal court jurisdiction. In this case, Lantech alleges that the requirements for an anti suit injunction are not met. The Court agrees. An anti suit injunction may issue only if:
“(1) ‘the parties are the same in both [the foreign and domestic lawsuits],’ and (2) ‘resolution of the case before the enjoining court is dispositive of the action to be enjoined.’ … [Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 652 (2d Cir. 2004)] … Once these threshold requirements are satisfied, courts must then consider additional factors to determine whether an injunction is appropriate. … see also [Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 18 (1st Cir. 2004)], noting that only if the ‘gatekeeping inquiry’ is met ‘should the court proceed to consider all the facts and circumstances in order to decide whether an injunction is proper’) …” [Slip op. 3]
Here, the substantive issue in the Costa Rican action is a claim arising from Law 6209 for unlawful termination of a distributorship. The claims before the district court, in contrast, are common law contract and quasi contract claims for non payment of goods.
Even though both the Costa Rican and the U.S. actions revolve around the parties’ Agreement, the claims are different. “Lantech’s Costa Rican action hinges on statutory rights that are unique to Costa Rica and that cannot be resolved by a judgment of the district court on Canonlat’s claims in Florida. … As a result, the district court erred in granting the permanent anti suit injunction against Lantech. …”
“While we agree with Canonlat that the two actions are somewhat similar, Canonlat has not shown that the resolution of its claims in the district court would actually dispose of Lantech’s claim in Costa Rica. The district court conceded as much in its discussion of the issue but concluded nevertheless that the cases were ‘sufficiently similar’ to justify an anti suit injunction because ‘the effect and enforceability of the Agreement [were] placed directly at issue in the Costa Rican action.’ Whether or not the cases are similar is not the legal standard, however. On the contrary, the standard, even according to Gallo upon which the district court mostly relied, is ‘whether or not the first action is dispositive of the action to be enjoined.’ …” [Slip op. 4]
The district court erred because the second threshold requirement for an anti suit injunction has not been met.
Citation: Canon Latin America, Inc. v. Lantech (CR), S.A., No. 07 13571 (11th Cir. November 21, 2007).
Filed in: 2007 International Law Update, Issue10
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In case of American citizen’s death in airplane crash in Italy, Eleventh Circuit rules that it was improper for district court to stay case pending resolution of Italian litigation, where it would put American plaintiff “effectively out of court”
In October 2001 at the Linate airport in Milan, Italy, a Cessna jet operated by Air Evex, a German Company taxied onto an active runway in the fog, colliding with a Scandinavian Air Systems jet that was just taking off. Several hundred people died. In addition to lawsuits pending in the Italian courts, the estates of seventy of the victims and an injured survivor sued Cessna (Defendant) in a Florida federal court. The survivor and sixty nine decedents’ estates were European citizens (European Plaintiffs). One plaintiff was Jessica King, an American citizen (American Plaintiff).
Defendant moved to dismiss in favor of the Italian courts on grounds of forum non conveniens. The district court granted the motion as to the European Plaintiffs but denied the motion as to the American Plaintiff. The district court stayed the proceedings pending the Italian Court’s ruling on the Italian law issues. All plaintiffs appealed. The U.S. Court of Appeals for the Eleventh Circuit vacated the order staying the American Plaintiff’s case and the order dismissing the European Plaintiffs’ Case, and remanded the cases to the district court.
The Court explains its reasoning. “The general rule is that a stay is not a final disposition, and thus not immediately appealable. [Cite]. However, there is an exception for stays that put a plaintiff ‘effectively out of court,’ and in applying that exception we have held that a stay order that is immoderate and involves a protracted and indefinite period of delay is final and appealable under 28 U.S.C. § 1291. [Cites].” [Slip op. 5].
“The Supreme Court first recognized the doctrine at issue here in Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713, 715 n.2 (1962). In that case a liquor distributor filed a complaint in federal court seeking a declaratory judgment that the New York Alcoholic Beverage Control Law would be unconstitutional as it was applied. [Cite]. The distributor asserted a statutory right to have its case heard by a three judge panel. Id. The district court refused to convene a three judge court and stayed the lawsuit based on the Pullman abstention doctrine, under which federal courts abstain from resolving constitutional disputes where a state court’s clarification of its own law might render a constitutional ruling unnecessaryOn review the Supreme Court noted: ‘The Court of Appeals properly rejected the argument that the order of the District Court ‘was not final and hence unappealable under 28 U.S.C. §§ 1291, 1292,’ pointing out that ‘appellant was effectively out of court.’ [Cite].” [Slip op. 5 6].
“Applying the ‘effectively out of court’ doctrine to the facts before us, it is apparent that [the American Plaintiff] is at least as ‘effectively out of court’ as the plaintiff in Idlewild was. The only notable difference between this case and Idlewild is that the stay in this case was issued in favor of foreign litigation, while the stay in Idlewild was issued in favor of state court litigation. The question, then, is whether that distinction matters to application of the ‘effectively out of court’ exception to the finality rule of appellate jurisdiction.”
“[Defendant], of course, contends that it does matter. It argues that ‘[f]or purposes of appealability, the significance of abstention doctrines based on federalism is that generally, when a federal court abstains in deference to a state court or [state] regulatory agency, the abstention necessarily ends the federal court’s involvement with the suit.’ That is true, [Defendant] says, because the resulting judgment in state court will often have res judicata effect on any later federal litigation. This is a sophisticated argument, but not one that can be squared with the Idlewild decision.”
“If the Idlewild doctrine were confined to cases in which abstention necessarily will end federal court involvement in the lawsuit, or generally does so, the Supreme Court was mistaken about the disposition of that very case, and for our purposes the Supreme Court never makes a mistake.” [Slip op. 8].
“[T]he ‘effectively out of court’ exception to the final judgment rule is not categorically inapplicable where a stay has been entered in favor of foreign court litigation. Its application in a particular case depends on[w]hether the litigant has been placed ‘effectively out of court,’ which will happen when a federal court stays its hand to allow another court to assume partial jurisdiction over the merits of the suit.”
“[American Plaintiff's] appeal fits within the ‘effectively out of court’ exception to the final judgment rule. He has for all practical effects been put out of court indefinitely while litigation whose nature, extent, and duration are unknown, is pending in Italy. The district court has held its hand while Italian courts assume or continue what amounts to jurisdiction over the merits of the lawsuit. Their decision of Italian law issues will be followed by the district court.”
“The stay order does have the legal effect of preventing [American Plaintiff] from proceeding with his claims in federal court for an indefinite period of time, potentially for years. Because he has been effectively put out of court, we have jurisdiction to review the order that did put him out.” [Slip op. 10].
“We do not mean that there are no differences between federalism and international comity for purposes of evaluating the merits of a stay order, as distinguished from deciding whether appellate jurisdiction exists to review the stay order. As [Defendant] has reminded us, we have previously observed that: ‘The relationship between the federal courts and the states (grounded in federalism and the Constitution) is different from the relationship between federal courts and foreign nations (grounded in the historical notion of comity).’ [Cite]. Those important differences do not, however, affect the extent to which a plaintiff is placed ‘effectively out of court,’ which is the measure that defines our appellate jurisdiction over stay orders.” [Slip op. 10].
“Because we are vacating the stay order and recognizing [American Defendant's] right to proceed in the district court, one of the considerations that led to the district court’s ruling in the cases of the European plaintiffs has changed Rather than speculate as to what, if anything, the court might have done differently had it known that it could not stay proceedings in the [American Defendant's] case, we will vacate and remand this entire case to the district court so that it can decide.” [Slip op. 15].
Citation: King v. Cessna Aircraft Co., 2007 WL 3085567, No. 06 10519 (11th Cir. 2007).
Filed in: 2007 International Law Update, Issue9
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Ninth Circuit holds that considerations of “international comity” do not require U.S. court to submit to English court’s injunction against proceeding, where content of forum selection clause is disputed and Plaintiff filed case in U.S. Court prior to Defendant’s filing in English Court that issued injunction
Dependable Highway Express, Inc. (Plaintiff) operates a warehouse in Los Angeles. Navigators Insurance Company (Defendant) issued indemnity insurance to Plaintiff. A dispute arose when Defendant refused to reimburse Plaintiff for costs related to two cargo thefts, which cost the Plaintiff approximately $245,000. Plaintiff filed a lawsuit in a California state court alleging breach of contract.
Defendant obtained an injunction in an English Court preventing Plaintiff proceeding with litigation in the United States based on the “Columbus Wording” contained in the contract. It required an English arbitration of any disputes. Defendant then removed the California case to federal court and moved to dismiss based on the English proceedings. The district court acknowledged the English court’s injunction and stayed the proceedings “pending the resolution of the London proceedings, including arbitration.”
Plaintiff appealed to the Court of Appeals for the Ninth Circuit. After assessing the legitimacy of the district court’s grounds for issuing the stay, the court turned to the central issue of the case. “Having determined that the district court’s stated grounds for issuing the stay were erroneous, we next consider whether the stay nevertheless should be upheld under principles of international comity, as urged by [Defendant]. See Forest Guardians v. U.S. Forest Serv., 329 F.3d 1089, 1097 (9th Cir. 2003) (‘[W]e are free to affirm the district court on any ground supported by the record and briefed by the parties, and we are not limited to reviewing the district court’s stated basis for its decision.’).” [Slip op. 8]
“[W]e conclude that invoking the international comity doctrine would be inappropriate on the inadequate record before us. [Plaintiff ] filed suit in a U.S. forum before [Defendant] brought its anti suit injunction action in the English court. The English court thus had the ‘initial opportunity to exercise comity,’ Laker Airways, 731 F.2d at 939, but elected not to. Moreover, the clear thrust of [Defendant's] English action was to halt [Plaintiff's] domestic proceedings – a tactic frowned upon in Laker Airways. Cf. id. at 938 (“[B]y any definition, the injunctions of the United Kingdom courts are not entitled to comity. This is because the action before the United Kingdom courts is specifically intended to interfere with and terminate Laker’s United States antitrust suit . . . . [T]he English injunction seeks only to quash the practical power of the United States Courts to adjudicate claims under U.S. law. . .’). Indeed, the express purpose of an anti suit injunction, be it offensive or defensive, is to block litigation in a separate forum. Comity is not required where the British action was filed after the U.S. action for the sole purpose of interfering with the U.S. suit.” [Slip op. 9 10]
“ [Defendant] claims it has acted in accordance with the terms of a forum selection clause that it believed to have been part of the insurance contract. Despite [Defendant's] purportedly good intentions, however, the practical effect of its action in English court was to interfere with the domestic forum’s ability to adjudicate the dispute.” [Slip op. 10]
“If the record were clear that the parties [had] agreed to foreign arbitration, or if the district court [had] made such a determination, we would have little trouble upholding the stay on grounds of international comity. [Cite]. The English court would not have been bound by principles of comity in the first instance, and the district court’s stay would have simply recognized the validity of the parties’ forum selection clause. [Cite].”
“Central to the dispute before us, however, is the parties’ disagreement over the very existence of arbitration and forum selection clauses designating London as the site of the arbitration and English law as the sole means of settling insurance coverage disputes. [Cite]. Where, as here, the record does not even contain a copy of the original insurance contract, it would be improper to invoke international comity based on the mere possibility of upholding a disputed forum selection or arbitration clause.” [Slip op. 10 11]
“We hold that the district court’s indefinite … stay was an abuse of discretion. Furthermore, upholding the stay under the doctrine of international comity would be inappropriate at this stage based on the limited record before us. We remand so the district court can develop the record in order to determine whether [Plaintiff] and [Defendant had] agreed to arbitrate disputes arising from the insurance contract.” [Slip op. 11]
Citation: Dependable Highway Express, Inc. v. Navigators Ins. Co., 2007 WL 2379611 (9th Cir. 2007).
Filed in: 2007 International Law Update, Issue8
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Eighth Circuit decides that anti suit injunction is inappropriate where Japanese company intends to file suit under Japanese “clawback statute” to recover amount of U.S. court judgment after it has satisfied it
Japanese based Tokyo Kikai Seisakusho, Ltd. (Defendant), one of the Defendants, and Goss International Corporation (Plaintiff), a Delaware company, both manufacture and supply newspaper printing presses and press additions. Between 1991 and 2000, Defendant allegedly began “dumping” its products, that is, selling them in the U.S. at prices substantially below the market value of its similar products in Japan. During that period, Defendant sold $125,000,000 worth of printing press additions in the US. Plaintiff, on the other hand, was losing contracts because customers expected it to lower its prices to match Defendant’s predatory prices. In 2000, Plaintiff did not make a single printing press equipment sale. Plaintiff sued the Japanese Defendant alleging violations of the Antidumping Act of 1916 (the 1916 Act), 15 U.S.C. Section 72 (repealed 2004). The law “made it unlawful for foreign persons to sell imported articles within the United States at a price substantially less than the actual market value or wholesale price at the time of exportation, with the intent of destroying or injuring an industry in the United States.” [Slip op. 2]. A district court awarded Plaintiff a judgment that totaled more than $35,000,000.00.
Congress repealed the 1916 Act on December 3, 2004. The repeal did not affect Plaintiff’s judgment, however, because it was prospective. Shortly thereafter Japan enacted The Special Measures Law concerning the Obligation to Return Profits Obtained pursuant to the Antidumping Act of 1916 of the United States (SML), a so called “clawback” statute, It authorized Japanese corporations and nationals to sue in Japanese courts for recovery of the full amount of any judgment, plus interest, attorney fees and costs, awarded under the 1916 Act.” [Slip op. 3].
On appeal, the Eighth Circuit affirmed the jury verdict and damages award. The U.S. Supreme Court denied Defendant’s petition for writ of certiorari. Prior to Defendant’s payment of the judgment, Plaintiff obtained a preliminary and permanent antisuit injunction to prevent Defendant from availing itself of the SML in the Japanese courts. Defendant appealed to the
U.S. Court of Appeals for the Eighth Circuit, which sets aside the injunctions.
The Court then explains its ruling. “The propriety of issuing a foreign antisuit injunction is a matter of first impression for our circuit. Other circuits having decided the issue agree that ‘federal courts have the power to enjoin persons subject to their jurisdiction from prosecuting foreign suits the circuits are split, however, on the level of deference afforded to international comity in determining whether a foreign antisuit injunction should issue.” [Slip op. 4].
“The First, Second, Third, Sixth, and District of Columbia Circuits have adopted the ‘conservative approach,’ under which a foreign antisuit injunction will issue only if the movant demonstrates (1) an action in a foreign jurisdiction would prevent United States jurisdiction or threaten a vital United States policy, and (2) the domestic interests outweigh concerns of international comity under the conservative approach, ‘[c]omity dictates that foreign antisuit injunctions be issued sparingly and only in the rarest of cases.’ Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349, 1354 (6th Cir. 1992). (citing Laker Airways Ltd. v. Sabena, Belgian World Airlines, 235 U.S. App. D.C. 207, 731 F.2d 909, 927 (D.C. Cir. 1984))” [Slip op. 4].
“In contrast, the Fifth and Ninth Circuits follow the ‘liberal approach,’ which places only modest emphasis on international comity and approves the issuance of an antisuit injunction when necessary to prevent duplicative and vexatious foreign litigation and to avoid inconsistent judgments.” [Slip op. 5]
The Eighth Circuit adopts the conservative approach for determining whether a foreign antisuit injunction should issue. The Court then considered the proper scope of jurisdiction under the All Writs Act. “Although the All Writs Act, 28 U.S.C. Section 1651(a), authorizes federal courts to ‘issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law,’ the Act does not create an independent source of federal jurisdiction.” [Slip op. 10].
The Court then distinguished the circumstances present in this appeal from those facing the district court. “In this case, at the time the district court issued the preliminary antisuit injunction, the district court clearly possessed jurisdiction over the case and parties pursuant to 28 U.S.C. Section 1331, and [Defendant] had not paid the monetary judgment. Thus, the district court retained ancillary enforcement jurisdiction until satisfaction of the judgment.”
“Now, however, the antidumping litigation has culminatedtherefore, the judgment now is rendered, paid, and satisfied. No pending litigation, other than this appeal, remains in the United States courts. Thus, the request for injunctive relief is not for the prevention of interdictory jurisdiction by Japanese courts. Instead, the United States courts are being asked to prevent [Defendant] from seeking a remedy available solely in Japan. Neither the All Writs Act nor the court’s ancillary enforcement jurisdiction provides the district court with a separate source of jurisdiction to enjoin [Defendant] under these circumstances.” [Slip op. 11].
The Court found no threat to their jurisdiction, reasoning that, “in cases involving parallel litigation in foreign countries, once one court reaches a final judgment, the role of comity for antisuit injunction purposes essentially is moot because there is no longer tension with the foreign country over concurrent jurisdiction. Instead, the doctrine of res judicata should apply as a defense to further litigation of the same issues.”
“The issues previously decided below in the district court are different from the issues sought to be litigated in the foreign jurisdiction. [Defendant] now seeks to litigate in Japan a cause of action solely available in Japan and not previously litigated in the antidumping litigation. The issues are not the same simply because [Defendant] cause of action under the Special Measures Law rests on the imposition of an adverse judgment against [Defendant] under the 1916 Act.”
The Court did not find sufficient evidence in the legislative history to justify the antisuit injunction stating, “we disagree with the district court’s assertion that Congress’s decision to repeal the 1916 Act prospectively, rather than retroactively, may play a role in the decision to
grant a foreign antisuit injunction to protect the court’s jurisdiction or an important United States policy.” [Slip op. 12].
“Our consideration of international comity must allow the Japanese courts, in the first instance, to determine the enforceability of the Special Measures Law, which will undoubtedly involve application of Japanese precedent and domestic policy, and the Japanese courts’ own consideration of international comity [I]nternational comity requires us to give deference
to the Japanese courts to interpret Japanese laws.”
The Court declined to extend its jurisdiction on U.S. policy grounds reasoning that, “we are profoundly aware a judgment in favor of [Defendant] under the Special Measures Law would effectively nullify the remedy [Plaintiff] legitimately procured in the United States courts. Although such a result understandably is objectionable to [Plaintiff] it does not threaten United States jurisdiction or any current United States policy.” [Slip op. 13].
“Although the Special Measures Law, like other clawback or blocking provisions, can be regarded as an affront to the laws and judicial rules of the United States the United States Executive and Legislative Branches, not the Judiciary, are the governmental bodies to address those diplomatic tensions.” [Slip op. 14].
Citation: Goss International Corp. v. Man Roland Druckmaschinen Aktiengesellschaft, 2007 WL 1731573 (8th Cir. 2007).
Filed in: 2007 International Law Update, Issue6
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In dispute over contamination of oil shipment, Second Circuit holds that other instruments may incorporate arbitration clauses by reference and that lower court had properly issued anti suit injunction against parallel Nigerian litigation under China Trade test
Ibeto Petrochemical Industries Limited (Plaintiff) filed suit in a New York federal court, to recover damages caused by seawater contamination of a cargo of base oil. The Defendants are the vessel M/T Beffen, plus Bryggen Shipping and Trading A/S (Defendants).
The tanker sailed from a New Jersey port in February 2004, loaded with base oil for delivery to the Plaintiff in Nigeria. The shipper of record was Chemlube International, Inc. The Bill of Lading referenced the standard “Asbatankvoy” Tanker Charter Party and the “Chemlube Terms” dated September 2002. The Asbatankvoy provisions included a clause providing for arbitration of disputes in either New York or London. The Chemlube Terms specified arbitration in London.
By the time the M/T Beffen made port in Nigeria, sea water had allegedly contaminated the base oil shipment. Plaintiff sued the Defendants in a Nigerian court in March 2004. Plaintiff demanded arbitration in London and, alternatively, filed this suit in New York “out of an excess of caution.”
The New York court granted Defendants’ motions (1) to stay the present action and (2) to issue an antisuit injunction (ASI) against the Nigerian litigation. Plaintiff appealed these two rulings. The Second Circuit affirms in part and modifies in part.
As for the ASI directed at the Nigerian case, the district court reasoned that the Nigerian litigation might frustrate the general U.S. policy of enforcing arbitration clauses. Defendants argued that the court had issued the ASI improperly because Plaintiff had not expressly agreed to arbitrate this matter.
The Court explains that other instruments may incorporate by reference “boiler plate” arbitration clauses. In Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 991 F.2d 42, 48 (2d Cir. 1993), for example, the Court held that an arbitration clause in a Charter Party binds the parties to a Bill of Lading (BOL) which had incorporated the Charter Party by reference.
The Court then turns to the appropriateness of the ASI against the Nigerian litigation and its terms. It holds that the district court had properly applied China Trade & Dev. Corp. v. M.V. Choon Young, 837 F.2d 33, 35 36 (2d Cir. 1987). “Pursuant to the China Trade test, ‘[a]n anti suit injunction against parallel litigation may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined. China Trade, above at 35. Once past this threshold, courts are directed to consider a number of additional factors, including whether the foreign action threatens the jurisdiction or the strong public policies of the enjoining forum.’ Id. at 36.”
“The ‘threshold’ described is clearly met in this case, for the parties are the same in this matter and in the Nigerian proceeding and the resolution by arbitration of the case before the District Court is dispositive of the Nigerian proceeding. The factors then to be considered under the China Trade test are the following: ‘(1) frustration of a policy in the enjoining forum; (2) the foreign action would be vexatious; (3) a threat to the issuing court’s in rem or quasi in rem jurisdiction; (4) the proceedings in the other forum prejudice other equitable considerations; or (5) adjudication of the same issues in separate actions would result in delay, inconvenience, expense, inconsistency, or a race to judgment.’ China Trade, above at 35.” [Slip op. 7].
Applying these factors, the Second Circuit agrees that the Nigerian litigation might frustrate the general federal policy favoring arbitration and that inconsistent outcomes may result. In addition, it would be seriously inconvenient to shuttle witnesses back and forth between the two widely separated venues. Although the Nigerian litigation was first in time, the Second Circuit finds that the ASI is fully justified in this case, particularly in light of the strong U.S. federal policy favoring arbitration.
Citation: Ibeto Petrochemical Industries Limited v. M/T Beffen, Her Engines, Tackles, No. Boiler, No. 05 6610 cv (2d Cir. January 17, 2007).
Filed in: 2007 International Law Update, Issue1
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Ninth Circuit enjoins Ecuadorian litigation where it violates U.S. forum selection clause of underlying private contract between private companies, where foreign litigation is vexatious and where injunction would not transgress international comity
In 1978, E.& J. Gallo Winery (Gallo) (plaintiff), a large California winery, entered into an exclusive distributorship agreement with the predecessor of Andina Licores S.A. (defendant) (an Ecuadorian company). In 1987, plaintiff and defendant signed an updated agreement. Both the original and the updated agreement provided that California would be the forum for any litigation.
Despite many years of cooperation, the relationship took a bizarre turn in 2004 over allegedly late shipments and exclusivity. Defendant filed a proceeding before the Sixth Civil Court in Guayaquil, claiming to know nothing about plaintiff’s whereabouts. As a result, defendant asked the court to appoint a guardian (curador) selected by defendant to represent plaintiff. As if that were not strange enough, defendant’s choice of a curador for plaintiff was Rita Yepez, a recently admitted attorney, whose legal qualifications were certified by a day laborer and a student.
Defendant then filed suit against plaintiff in the Second Civil Court of Guayaquil, alleging a violation of Decree 1038-A. That Decree limited discovery to six business days (September 10 to September 17, 2004). Issued during the Ecuadorian military dictatorship in 1976, a later regime repealed it in 1997 as contrary to World Trade Organization rules. The curador notified plaintiff of this proceeding by mail, but plaintiff apparently did not get that letter until September 16, 2004. Plaintiff then retained an attorney who turned out to be ineffectual (a) in informing the court about the California forum selection clause, and (b) in introducing additional evidence.
In October 2004, plaintiff brought its own action against defendant in California state court. Defendant removed that action to federal court, and moved to dismiss for lack of personal jurisdiction. Plaintiff then sought a preliminary injunction to prevent defendant from pursuing its action in Ecuador (which is the issue here). Meanwhile, “a dizzying array or (sic) judgments, appeals, and procedural motions continued in Ecuador.” [Slip op. 4]
The district court denied plaintiff’s request for the preliminary injunction, largely on international comity considerations, and plaintiff appealed. The U.S. Court of Appeals for the Ninth Circuit reverses and remands with instructions to grant the preliminary injunction.
The Court points out that it had last examined the standard for granting an “anti-suit injunction” in Seattle Totems Hockey Club, Inc. v. Nat’l Hockey League, 652 F.2d 852, 855 (9th Cir. 1981). It then declared: “‘A federal district court with jurisdiction over the parties has the power to enjoin them from proceeding with an action in the courts of a foreign country, although the power should be used sparingly. The issue is not one of jurisdiction, but one of comity. …”
“We cited the Fifth Circuit’s standard in In re Unterweser Reederei GmbH, 428 F.2d 888, 896 (5th Cir. 1970), aff’d on reh. en banc, 446 F.2d 907 (1971), rev’d on other gds. sub nom. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), as instructive: ‘foreign litigation may be enjoined when it would (1) frustrate a policy of the forum issuing the injunction; (2) be vexatious or oppressive; (3) threaten the issuing court’s in rem or quasi in rem jurisdiction; or (4) where the proceedings prejudice other equitable considerations.’” [Slip op. 6]
Seattle Totems, however, left many questions unanswered, especially as far as international comity is concerned. The Court now turns to those issues. “The suitability of an anti-suit injunction involves different considerations from the suitability of other preliminary injunctions. An anti-suit injunction, by its nature, will involve detailed analysis of international comity. Often, as here, the injunction will be defensive in nature. [Plaintiff] has requested the preliminary injunction because of [defendant's] potentially prejudicial, vexatious and oppressive proceedings in Ecuador.”
“But should [plaintiff] also need to prove a likelihood of success on the merits of the breach of contract claim in order to receive an anti-suit injunction? That is, does our usual test for a preliminary injunction apply, or is a modified analysis required for anti-suit injunctions? While our cases are not clear on this issue, we conclude that the more appropriate approach is that enunciated by the Fifth Circuit: ‘To the extent the traditional preliminary injunction test is appropriate, . . . we only need address whether [the injunction seeker] showed a significant likelihood of success on the merits. The merits in this case, however, are . . . about . . . whether [the injunction seeker] has demonstrated that the factors specific to an antisuit injunction weigh in favor of granting that injunction here.” Karaha Bodas Co. L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357, 364 n.19 (5th Cir. 2003).” See related case at 2003 International Law Update 37.
“Thus, we hold that [plaintiff] need not meet our usual test of a likelihood of success on the merits of the underlying claim to obtain an anti-suit injunction against [defendant] to halt the Ecuadorian proceedings. Rather, [plaintiff] need only demonstrate that the factors specific to an anti-suit injunction weigh in favor of granting the injunction. For purposes of this action, we may rely on any of the Unterweser factors if it applies to the case and if the impact on comity is tolerable. This test, we conclude, is consistent with Seattle Totems.” [Slip op. 7]
The first step in determining whether an anti-suit injunction is appropriate is whether the parties and issues are the same, and whether the domestic action disposes of the foreign action. Here, the district court erred in concluding that the claims were not the same. Defendant sued in Ecuador for breach of contract. In the U.S., plaintiff sought a declaration that it did not breach the same contract. Therefore, the parties and the claims are essentially the same.
Another Seattle Totems factor is that a U. S. court may enjoin foreign litigation when it would frustrate a policy of the forum issuing the injunction. Here [plaintiff] claims that the injunction would enforce a forum selection clause which the parties had agreed on. Moreover, [defendant] failed to give any reason for setting aside the forum selection clause. [Plaintiff] can enforce the clause only by means of an anti-suit injunction. Therefore, [defendant's] litigation in Ecuador to set aside the forum selection clause does frustrate a policy of the U. S.
Lastly the Court turns to the issue of international comity. “That [defendant] filed first … makes no difference as to the propriety of an anti-suit injunction. In a situation like this one, where private parties have previously agreed to litigate their disputes in a certain forum, one party’s filing first in a different forum would not implicate comity at all. No public international issue is raised in this case. There is no indication that the government of Ecuador is involved in the litigation.”
“[Defendant] is a private party in a contractual dispute with [plaintiff] another private party. The case before us deals with enforcing a contract and giving effect to substantive rights. This in no way breaches norms of comity. Under the lower court’s reasoning, any party seeking to evade the enforcement of an otherwise-valid forum selection clause need only rush to another forum and file suit. Not only would this approach vitiate United States policy favoring the enforcement of forum selection clauses, but it could also have serious deleterious effects for international comity.” [Slip op. 11]
The Court concedes that there are different views in the Circuits as to the relative importance of comity when deciding anti-suit injunctions. This case, however, would likely meet any of those tests. Therefore, the anti-suit injunction should issue.
Citation: E. & J. Gallo Winery v. Andina Licores S.A., No. 05-16504 (9th Cir. May 1, 2006).
Filed in: 2006 International Law Update, Issue 5